Rockyview Energy Inc.
TSX : RVE

Rockyview Energy Inc.

November 10, 2005 07:00 ET

Rockyview Energy Inc. Presents its Financial and Operating Results for the Three Month Period Ended September 30, 2005

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. Rockyview Energy Inc. (TSX:RVE) ("Rockyview" or the "Company") is pleased to present its financial and operating results for the three month period ended September 30, 2005. Rockyview was created on June 21, 2005, following completion of a Plan of Arrangement between APF Energy Trust, APF Energy Inc. and Rockyview (the "Arrangement"). HIGHLIGHTS - Began drilling operations in mid-September on a $13 million 2005 capital program. - Drilled and cased 10 gas wells (6.1 net) during the quarter. - Cash flow from operations increased by 69% to $0.27 per share, from $0.16 per share in the previous quarter. - Earnings improved to $0.06 per share from the net loss of $0.02 per share in the previous quarter. - Commodity prices averaged $Cdn 68.12 per barrel for oil and $Cdn 9.62 per mcf for natural gas. - Ordered an additional 1,000 hp of compression for the Wood River area to be commissioned in December 2005. PROPOSED ACQUISITION OF ESPOIR EXPLORATION CORP. On October 31, 2005 Rockyview announced that it had agreed to acquire all of the issued and outstanding shares of Espoir Exploration Corp. ("Espoir") for a total consideration of $61.9 million, subject to a maximum payment of $8.325 million in cash and the issuance of 7,445,000 Rockyview shares. Espoir has operations focused in two areas: Thunder in Central Alberta and Spirit River/Gordondale in the Peace River Arch. Both of these predominantly natural gas areas complement Rockyview's existing portfolio of assets and bring with them significant multizone exploration potential. Upon closing the transaction in mid-January, Rockyview will have the following key operating and financial characteristics: - Estimated production of approximately 2,300 boe per day, leveraged 94% to natural gas, after giving effect to production additions from Rockyview's 2005 capital program; - A high quality drilling inventory of 130 gross (75 net) wells to be drilled during 2006 and 2007; - No commodity price hedges in place, allowing full participation in a strong commodity price environment; - Increased market capitalization resulting in enhanced liquidity and improved financial flexibility; - Attractive balance sheet at closing with an estimated net debt of approximately 0.5 times projected 2006 cash flow; and - Combined tax pools of approximately $69 million. OPERATIONS The Company commenced its shallow gas drilling program in mid-September, resulting in 10 (6.1 net) wells at Wood River, of which one (0.5 net) were in the Belly River formation and 9 (5.6 net) were Horsheshoe Canyon CBM wells. The entire capital program to the end of 2005 contemplates 43 (26 net) wells. Since September 30, 2005, Rockyview has drilled an additional 21 (12.4 net) wells, with the balance of 12 (7.5 net) wells to round out the 2005 drilling program. Rockyview has a drilling rig on contract for the balance of this season's program and into 2006. An additional 1,000 horsepower of field compression has been ordered for Wood River and is scheduled to be installed by mid-December, thereby increasing the Company's existing output capacity. Rockyview is still estimating that year-end exit production should be approximately 1,400 boe per day, comprised of 8,000 mcf of gas and 67 bbl of oil and liquids. OUTLOOK Rockyview commenced operations in June with a solid production base and an inventory of over 168 (93 net) drilling locations, all of which targeted shallow gas. A successful third and fourth quarter drilling program has harvested the first phase of upside, which will see the Company drill 43 (26 net) wells by the end of the year. Together with the drilling inventory expected to come from the Espoir acquisition (closing in early 2006), Rockyview plans to drill another 130 (75 net) gas wells during 2006 and 2007, with opportunities drawn from the lower risk shallow gas projects at Wood River, as well as from higher impact plays at Thunder and Gordondale/Spirit River. In total, Rockyview has identified capital projects amounting to $37 million on the combined land base, of which approximately $30 million will be spent in 2006. Financing for these initiatives will come from an estimated annual cash flow of $40-44 million. Reader Advisory Forward Looking Statements - Certain information regarding Rockyview set forth in this news release, including management's assessment of future plans, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Rockyview's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, risks associated with the uncertainty of reserve estimates, currency fluctuations and the timing of listing of shares. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion factor is an industry accepted norm and is not based on either energy content or current prices.


Financial Review & Operating Highlights
                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------

FINANCIAL ($)
Revenue before royalties                          5,711,873   6,202,088
Net income                                          742,413     711,076
 Per share - basic                                     0.06        0.10
 Per share - diluted                                   0.06        0.10
Cash flow from operations                         3,225,343   3,436,476
 Per share - basic                                     0.27        0.48
 Per share - diluted                                   0.27        0.48
Total assets                                     55,550,814  55,550,814
Working capital                                   7,799,898   7,799,898
Capital asset acquisitions                                -  39,864,559
Capital expenditures                              2,204,072   2,230,393
------------------------------------------------------------------------

Market
Shares outstanding (Note 1)
 End of period                                   12,068,699  12,068,699
 Weighted average - basic                        12,068,699   7,086,852
 Weighted average - diluted                      12,152,698   7,170,851

OPERATIONS
Average daily production (Note 2)
Light crude oil (bbl/d)                                  42          42
NGLs (bbl/d)                                             34          35
Natural gas (mcf/d)                                   5,719       5,734
Total (boe/d)                                         1,029       1,032
------------------------------------------------------------------------

Average wellhead prices
Light crude oil ($/bbl)                               68.12       67.96
NGLs ($/bbl)                                          58.78       58.21
Natural gas ($/mcf)                                    9.62        9.37
Average ($/boe)                                       58.15       56.78
------------------------------------------------------------------------

Operating netback ($/boe)                             40.21       39.09
------------------------------------------------------------------------

Note:
      1. Weighted average shares outstanding have been calculated based
         on the 172 days from date of incorporation.

      2. Actual daily production volumes for the period ended September
         30, 2005 reflect 102 days of production from commencement of
         operations on June 21, 2005.

Management's Discussion & Analysis This management, discussion and analysis ("MD&A") was prepared as of November 7, 2005 and should be read in conjunction with the unaudited financial statements and notes for the three months ended September 30, 2005. Basis of Presentation - Rockyview Energy Inc. ("Rockyview" or the "Company") was incorporated as 1163924 Alberta Inc. on April 12, 2005 under the Business Corporations Act (Alberta). The Company participated in the Plan of Arrangement ("Arrangement") entered into by APF Energy Trust, APF Energy Inc. and Rockyview Energy Inc. which resulted in Rockyview acquiring certain oil and assets formerly owned by APF Energy Inc. Non-GAAP Measurements - The MD&A contains the term "cash flow from operations", which should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles, as an indicator of the Company's performance. Rockyview's determination of cash flow from operations may not be particularly comparable to that reported by other companies, especially those in other industries. The reconciliation between net income and cash flow from operations can be found in the statement of cash flow in the unaudited financial statements. The Company also presents cash flow from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. The Company will also use operating netback as an indicator of operating performance. Operating netback is calculated on a per boe basis taking the sales price and deducting royalties, operating and transportation expenses. BOE Presentation - The term "barrels of oil equivalent" ("BOE") may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in the report are derived by converting gas to oil in the ratio of 6 thousand cubic feet of gas to one barrel of oil. BASIS OF PRESENTATION The Company commenced production on June 21, 2005. Accordingly, for operating results, the period ended September 30, 2005 reflects 102 days of production.


PRODUCTION

                                               Three months      Period
                                                      ended       ended
                                                  September   September
Average daily production volumes                   30, 2005    30, 2005
------------------------------------------------------------------------
Light crude oil (bbl/d)                                  42          42
NGLs (bbl/d)                                             34          35
Natural gas (mcf/d)                                   5,719       5,734
------------------------------------------------------------------------
Total (boe/d)                                         1,029       1,032
------------------------------------------------------------------------
------------------------------------------------------------------------

The Company's production remained relatively unchanged from the end of the second quarter despite the wet weather conditions experienced in Central Alberta during the third quarter. Production is split 7% light oil and NGLs and 93% natural gas.


PETROLEUM AND NATURAL GAS
                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------

Light crude oil sales                            $  260,118  $  288,562
NGL sales                                           185,133     206,410
Natural gas sales                                 5,059,142   5,481,908
Royalty and other income                            207,480     225,208
------------------------------------------------------------------------
Gross oil and gas revenue                         5,711,873   6,202,088
------------------------------------------------------------------------
------------------------------------------------------------------------
Per boe                                          $    60.34  $    58.92
------------------------------------------------------------------------
------------------------------------------------------------------------

The Company sells all of its gas into the spot market based on the Alberta AECO reference price. AECO averaged $9.30 per mcf in the third quarter of 2005. Crude oil prices are derived from the WTI average price and the $US exchange rate. For the three months ended September 30, 2005 the WTI oil price averaged $US 63.19 per bbl and the $US/$Cdn exchange rate averaged 1.2014 ($Cdn 0.832). The average prices realized during the quarter by the Company were $68.12 per bbl for light crude oil, $58.78 per bbl for NGLs and $9.62 per mcf for natural gas.


ROYALTIES
                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
Crown royalties                                  $  765,177  $  827,751
Freehold royalties                                  153,030     168,720
Overriding royalties                                164,570     181,761
Total royalties                                   1,082,777   1,178,232
------------------------------------------------------------------------
% of gross oil and gas revenue                         19.0%       19.0%
------------------------------------------------------------------------
Per boe                                          $    11.44  $    11.19
------------------------------------------------------------------------
------------------------------------------------------------------------

Royalties for the third quarter averaged 19.0% of oil and gas revenues, consistent with the prior quarter. None of the Company's current production qualifies for the Alberta Royalty Tax Credit ("ARTC"). However, production from wells currently being drilled by Rockyview in Central Alberta will qualify for ARTC, thereby reducing the overall royalty rate.

OPERATING EXPENSES
                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
Operating expense                                $  691,089  $  766,343
Per boe                                          $     7.30  $     7.28
------------------------------------------------------------------------
------------------------------------------------------------------------

Operating expenses totalled $691,089 or $7.30 per boe for the three months ended September 30, 2005. During this first full quarter of operations, the Company conducted various workovers and facility maintenance programs aimed at increasing well production rates.

TRANSPORTATION COSTS
                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
Transportation expense                           $  131,210  $  143,291
Per boe                                          $     1.39  $     1.36
------------------------------------------------------------------------
------------------------------------------------------------------------

Transportation costs for the three months ended September 30, 2005 were $131,210, or $1.39 per boe and reflect pipeline tariffs and the cost of obtaining interruptible service.

OPERATING NETBACK Three months Period ended ended September September ($ per boe) 30, 2005 30, 2005 ------------------------------------------------------------------------ Revenues $ 60.34 $ 58.92 Royalties (11.44) (11.19) Operating expense (7.30) (7.28) Transportation (1.39) (1.36) ------------------------------------------------------------------------ Operating netback $ 40.21 $ 39.09 ------------------------------------------------------------------------ ------------------------------------------------------------------------

The operating netback for the third quarter of 2005 was $40.21 per boe and reflects the high commodity prices received during the quarter.


GENERAL AND ADMINISTRATIVE EXPENSES
                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
General and administrative - gross               $  526,446  $  588,936
Overhead                                           (117,946)   (117,946)
Capitalized                                        (108,937)   (108,937)
------------------------------------------------------------------------
General and administrative - net                 $  299,563  $  362,053
------------------------------------------------------------------------
Per boe                                          $     3.16  $     3.44
------------------------------------------------------------------------
------------------------------------------------------------------------

General and administrative expenses for the three months ended September 30, 2005 totalled $299,563 or $3.16 per boe. The Company capitalized $108,937 of general and administrative costs associated with its exploration and development program during the third quarter. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the fair value method for stock options. Under the fair value method, the Black-Scholes option pricing model was used to calculate the quarterly expense and is recorded in the income statement over the vesting period of the options.

Three months Period ended ended September September 30, 2005 30, 2005 ------------------------------------------------------------------------ Compensation expense $ 136,413 $ 151,240 ------------------------------------------------------------------------ Per boe $ 1.44 $ 1.44 ------------------------------------------------------------------------ ------------------------------------------------------------------------

For the period ended September 30, 2005 the Company had stock-based compensation of $136,413 or $1.44 per boe.

DEPLETION, DEPRECIATION AND ACCRETION Three months Period ended ended September September 30, 2005 30, 2005 ------------------------------------------------------------------------ Depletion, depreciation and accretion $2,143,414 $2,414,986 ------------------------------------------------------------------------ Per boe $ 22.64 $ 22.94 ------------------------------------------------------------------------ ------------------------------------------------------------------------

Depletion and depreciation for the quarter amounted to $2,127,204, while accretion of the asset retirement obligation for the quarter totalled $16,210. INCOME TAXES For the quarter ended September 30, 2005 the Company recorded a current income tax provision of $281,890 ($0.02 per share basic and diluted) and a future tax provision of $203,104 ($0.02 per share basic and diluted). Capital spending and resulting tax pool additions in the fourth quarter is expected to reduce the overall tax provision for 2005 and move the Company's tax horizon forward. At September 30, 2005 the Company has tax pools of approximately $49.3 million that are available to shelter future taxable income. CASH FLOW AND NET INCOME Cash flow for the third quarter was $3,225,343 or $0.27 per share basic and diluted and reflects the strong commodity prices experienced during the quarter. Net income for the third quarter was $742,413. Basic and diluted net income per share was $0.06. CAPITAL EXPENDITURES In the third quarter of 2005, the Company drilled and cased 10 wells (6.1 net), resulting in 10 gas wells (6.1) net. Capital expenditures during the third quarter were as follows:

                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
Property acquisitions                            $        - $39,864,559
Land and lease                                      160,252     171,470
Geological and geophysical                           42,402      42,402
Drilling and completions                          1,224,547   1,224,547
Equipment and facilities                            452,330     467,433
Capitalized administrative                          108,937     108,937
Office                                              215,604     215,604
------------------------------------------------------------------------
Net capital expenditures                          2,204,072  42,094,952
------------------------------------------------------------------------
------------------------------------------------------------------------

The Company records the fair value of future obligations associated with the retirement of long-lived tangible assets, such as well sites and facilities. Accounting for the recognition of this obligation results in an increase to the carrying value of these assets. This amount has been shown as the Company's asset retirement obligation. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2005 the Company had an unutilized credit line of $13.5 million. In addition, the Company had positive working capital of $7.8 million, including cash of $8.3 million. The Company will typically utilize three sources of funding to finance its capital expenditure program: internally generated cash flow from operations, debt where deemed appropriate and new equity issues if available on favourable terms. When financing corporate acquisitions, the Company may also assume certain future liabilities. In addition, the Company may adjust its capital expenditure program depending on the commodity price outlook and further opportunities that may be identified. OUTSTANDING SHARE DATA On November 7, 2005 there were 12,034,452 common shares outstanding, 896,074 outstanding warrants and 827,502 unvested stock options with an average exercise price of $4.74 per share. OUTLOOK The Company's initial capital budget for 2005 is $13 million, with plans to drill 43 gas wells (26 net) in the greater Wood River area of central Alberta. The Company has placed an order for an additional 1,000 hp of compression for the greater Wood River area that is scheduled to be commissioned by the middle of December. With successful completion of tie-in activities and the installation of the above compression, the company expects to exit 2005 with production of approximately 1,400 boe per day. On October 31, 2005 the Company announced that it had agreed to acquire all of the issued and outstanding shares of Espoir Exploration Corp ("Espoir)" for a total consideration of $61.9 million. The total consideration paid by the Company is subject to a maximum of $8.325 million in cash and 7.445 million Rockyview shares. Forward Looking Statements- Certain information regarding Rockyview Energy Inc. set forth in this document, including management's assessment of Rockyview Energy Inc.'s future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Rockyview Energy Inc.'s control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, current fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Rockyview Energy Inc.'s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Rockyview Energy Inc. will derive therefrom.


Balance Sheet
(unaudited)

As at September 30                                                 2005
------------------------------------------------------------------------

ASSETS

Current assets
Cash                                                       $  8,256,562
Accounts receivable                                           3,429,507
Other current assets                                            367,814
------------------------------------------------------------------------
                                                             12,053,883

Property, plant and equipment (notes 3 & 4)                  39,705,048
Future income taxes (note 7)                                  3,791,883
------------------------------------------------------------------------
                                                           $ 55,550,814
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES

Current liabilities
Accounts payable and accrued liabilities                   $  4,253,985
Asset retirement obligations (note 5)                           833,815

SHAREHOLDERS' EQUITY

Share capital (note 6)                                       49,016,283
Warrants (note 6)                                               584,415
Contributed surplus (note 6)                                    151,240
Retained earnings                                               711,076
------------------------------------------------------------------------
                                                             50,463,014
------------------------------------------------------------------------
                                                           $ 55,550,814
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to financial statements


Approved by the Board of Directors


"signed"                            "signed"
John Howard                         Steven Cloutier
Director                            Director



Statement of Operations
(unaudited)

                                    Three months ended      April 12 to
                                          September 30,    September 30,
                                                  2005             2005
------------------------------------------------------------------------
REVENUE
Petroleum and natural gas                  $ 5,711,873      $ 6,202,088
Royalties expense                           (1,082,777)      (1,178,232)
------------------------------------------------------------------------
                                             4,629,096        5,023,856
------------------------------------------------------------------------

EXPENSES
Operating                                      691,089          766,343
Transportation                                 131,210          143,291
General and administrative                     299,563          362,053
Stock-based compensation (note 6)              136,413          151,240
Depletion, depreciation and accretion        2,143,414        2,414,986
------------------------------------------------------------------------
                                             3,401,689        3,837,913
------------------------------------------------------------------------

Net income before income taxes               1,227,407        1,185,943
Current income tax expense                     281,890          315,694
Future income tax expense                      203,104          159,173
------------------------------------------------------------------------
Net income                                     742,413          711,076
------------------------------------------------------------------------
Retained earnings (deficit),
 beginning of period                           (31,337)               -
------------------------------------------------------------------------
Retained earnings, end of period             $ 711,076        $ 711,076
------------------------------------------------------------------------
------------------------------------------------------------------------

Net income per share - basic and
 diluted (note 6)                            $    0.06        $    0.10


See accompanying notes to financial statements


Statement of Cash Flows
(Unaudited)

                                    Three months ended      April 12 to
                                          September 30,    September 30,
                                                  2005             2005
------------------------------------------------------------------------

Cash flows from operating activities
Net income                                   $ 742,413        $ 711,076
Items not affecting cash
  Depletion, depreciation and accretion      2,143,414        2,414,986
  Stock-based compensation expense             136,413          151,240
  Future income taxes                          203,104          159,173
------------------------------------------------------------------------
Cash flow from operations                    3,225,344        3,436,475
Net change in non-cash working
 capital items                                (495,891)        (736,629)
------------------------------------------------------------------------
Net cash provided by operating
 activities                                  2,729,453        2,699,846
------------------------------------------------------------------------

Cash flows from financing activities
Issue of shares and warrants for cash,
 net of costs                                  (28,132)       7,859,220
Changes in non-cash working capital
 - financing items                             (37,648)               -
------------------------------------------------------------------------
Net cash provided by financing activities      (65,780)       7,859,220
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash flows from investing activities
Acquisition of oil and gas properties
 (notes 1 & 3)                                       -       (1,265,404)
Additions to property, plant and equipment  (2,204,072)      (2,230,393)
Changes in non-cash working capital
 - investing items                           2,163,708        1,193,293
------------------------------------------------------------------------
Net cash used in investing activities          (40,364)      (2,302,504)
------------------------------------------------------------------------
Change in cash during the period             2,623,309        8,256,562

Cash and cash equivalents
 - beginning of period                     $ 5,633,253      $         -
------------------------------------------------------------------------

Cash and cash equivalents - end of period  $ 8,256,562      $ 8,256,562
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to financial statements


Notes To Financial Statements
September 30, 2005 (unaudited)

1. BASIS OF PRESENTATION Rockyview Energy Inc. ("Rockyview" or the "Company") was incorporated on April 12, 2005 and commenced operations on June 21, 2005 under a Plan of Arrangement entered into by APF Energy Trust ("APF Trust"), APF Energy Inc ("APF"), 1163947 Alberta Inc. ("1163947") and Rockyview. Under the Arrangement, 1163947 acquired certain oil and gas properties from APF for a total cost of $49.66 million and then immediately amalgamated with Rockyview. The operations of the properties are included from June 21 to September 30, 2005. On June 21, 2005 there was an Initial Private Placement ("Private Placement") of 1,826,484 units ("Units") at $4.38 per Unit to employees, contractors, officers and directors of Rockyview. Each Unit comprises one Rockyview share ("Shares") and one half of a Rockyview Warrant ("Warrant"), each Warrant entitling the holder to acquire one Share at an exercise price of $5.26, exercisable for two years and eight months from the closing of the Private Placement. The Private Placement is subject to a contractual holding period whereby one-third of the Shares can be sold eight months from closing of the Private Placement, an additional one-third sixteen months from the closing of the Private Placement and the balance two years from the closing of the Private Placement. The Warrants will be released on satisfaction of the following criteria: (i) over time with one-third releasable on the dates which are eight, sixteen and twenty-four months from the closing of the Private Placement; and (ii) the twenty day weighted average trading price reaching $6.57 before the first tranche is released and $8.76 before the second and third tranches are released. As the former APF Trust unitholders are the controlling shareholder group of Rockyview, the assets and liabilities of Rockyview have been accounted for based on the carrying value in APF. The principal business of the Company is the exploration for, exploitation, development and production of oil and natural gas reserves. All activity is conducted in Western Canada and comprises a single business segment. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements are stated in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates. Measurement uncertainty The amounts recorded for depletion and depreciation of petroleum and natural gas properties and equipment, and the provision for asset retirement obligation costs, are based on estimates. In addition, the ceiling test calculation is based on estimates of proved reserves, production rates, oil and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty, and the effect on the financial statements of changes in such estimates in future periods could be material. Joint interests A portion of the Company's exploration, development and production activities is conducted jointly with others. These financial statements reflect only the Company's proportionate interest in such activities. Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits, and investments in highly liquid money market instruments which are convertible to known amounts of cash in less than three months. Financial instruments The fair market value of cash and cash equivalents, receivables, other current assets, payables and bank debt approximate their carrying value. From time to time, the Company may use derivative financial instruments to manage exposure to fluctuations in commodity prices, foreign currency exchange rates and interest rates. All transactions of this nature entered into by the Company are related to an underlying financial position or to future petroleum and natural gas production. The Company does not use derivative financial instruments for speculative trading purposes. The Company may enter into hedges to manage its exposure to petroleum and natural gas commodity prices by entering into crude oil and natural gas swap contracts, options or collars, when it is deemed appropriate. Any derivative contracts, which qualify for hedges, are not recognized on the balance sheet. Realized gains and losses on these contracts are recognized in petroleum and natural gas revenue and cash flows in the same period in which the revenues associated with the hedged transactions are recognized. Premiums paid or received are deferred and amortized to earnings over the term of the contract. The Company formally documents all relationships between hedging instruments and hedged items and assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Realized and unrealized gains and losses associated with hedging instruments that have been terminated or cease to be effective prior to maturity, are deferred on the balance sheet and recognized in income in the period in which the underlying hedged transaction is recognized. For transactions that do not qualify for hedge accounting, the Company applies the fair value method of accounting by recording an asset or liability on the balance sheet and recognizing changes in the fair value of the instruments in the current period statement of income. Property, plant and equipment Petroleum and natural gas production equipment The Company follows the full-cost method of accounting for its petroleum and natural gas properties and related facilities in accordance with the guideline issued by the Canadian Institute of Chartered Accountants whereby all costs relating to the exploration and development of petroleum and natural gas reserves are capitalized. Such costs include land acquisition, geological and geophysical, drilling of productive and non-productive wells, production equipment and facilities, lease rentals on non producing properties, and overhead expenses directly related to exploration and development activities. No indirect general and administration costs have been capitalized. Gains or losses on the disposition of properties are not recognized unless the proceeds on disposition result in a change of 20% or more in the depletion rate. Depletion and Depreciation Capitalized costs, along with estimated future capital expenditures to be incurred in order to develop proved reserves, are depleted and depreciated on a unit-of-production basis using estimated proved petroleum and natural gas reserves as evaluated by independent engineers. For purposes of this calculation, petroleum and natural gas reserves are converted to a common unit of measurement on the basis of their relative energy content where six thousand cubic feet of gas equates to one barrel of oil. Costs of acquiring and evaluating unproved properties are excluded from costs subject to depletion and depreciation until it is determined whether proved reserves are attributable to the properties or impairment occurs. Depreciation of furniture and office equipment is provided using the declining balance method at a rate of 25%. Ceiling test The net amount at which petroleum and natural gas properties are carried is subject to a cost recovery test (the "ceiling test"). Under this test, an estimate is made of the ultimate recoverable amount from undiscounted future net cash flows based on proved reserves, which is determined by using forecasted future prices, plus unproved properties. If the carrying amount exceeds the ultimate recoverable amount, an impairment loss is recognized in net earnings. The impairment loss is limited to the amount by which the carrying amount exceeds: (i) the sum of the fair value of proved and probable reserves; and (ii) the costs of unproved properties that have been subject to a separate impairment test and contain no probable reserves. Asset retirement obligations Estimated future costs relating to retirement obligations associated with oil and gas well sites and facilities are recognized as a liability at fair value. The asset retirement cost, equal to the fair value of the retirement obligation, is capitalized as part of the cost of the related asset. These capitalized costs are amortized on a unit-of-production basis, consistent with depletion and depreciation. The liability is adjusted at each reporting period to reflect the passage of time, with the accretion charged to earnings and for revisions to the estimated future cash flows. Actual costs incurred upon settlement of the obligations are charged against the liability. Future income taxes The Company follows the liability method of accounting for income taxes. Temporary differences arising from the differences between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are calculated using tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Revenue recognition Revenue from the sale of oil and natural gas is recorded when title passes to an external party. Stock-based compensation The company follows the fair-value method of accounting for stock options granted to employees and directors. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model and recognized over the vesting period of the options granted as stock-based compensation with a corresponding credit to contributed surplus. The consideration received by the Company on the exercise of share options is recorded as an increase to share capital, together with corresponding amounts previously recognized in contributed surplus. Forfeitures are accounted for as they occur, which could result in recoveries of the stock-based compensation cost. Per share amounts Basic per share amounts are calculated using the weighted average number of shares outstanding during the year. Weighted average number of shares is determined by relating the portion of time within the reporting period that common shares have been outstanding to the total time in that period. Diluted per share amounts are calculated using the treasury stock method which assumes that any proceeds obtained on exercise of share options or other dilutive instruments would be used to purchase common shares at the average market price during the period. The weighted average number of shares outstanding is then adjusted by the net change. 3. TRANSFER OF ASSETS AND COMMENCEMENT OF COMMERCIAL OPERATIONS Under the Arrangement, APF transferred certain producing and non-producing undeveloped petroleum and natural gas properties to Rockyview. As the former APF Trust unitholders are the controlling shareholder group of Rockyview, the assets and liabilities of Rockyview have been accounted for on a "continuity of interests" basis, resulting in the assets and liabilities being transferred at carrying value to Rockyview.


Net Assets Received

------------------------------------------------------------------------
Oil and natural gas assets and equipment                   $ 33,177,536
Undeveloped land                                              5,179,600
Seismic                                                       1,507,423
Future income tax asset                                       3,901,057
------------------------------------------------------------------------
Total assets transferred                                     43,765,616
Asset retirement obligation                                    (808,732)
------------------------------------------------------------------------
Net assets transferred at carrying value                     42,956,884
------------------------------------------------------------------------
------------------------------------------------------------------------

Consideration given
------------------------------------------------------------------------
Common shares issued (10,242,215 shares)                   $ 41,691,479
Cash                                                          1,265,405
------------------------------------------------------------------------
                                                           $ 42,956,884
------------------------------------------------------------------------
------------------------------------------------------------------------


4. PROPERTY, PLANT AND EQUIPMENT

                                                     September 30, 2005
------------------------------------------------------------------------
Petroleum and natural gas properties                       $ 42,102,078
Accumulated depletion and depreciation                        2,397,030
------------------------------------------------------------------------
Net book value                                             $ 39,705,048
------------------------------------------------------------------------
------------------------------------------------------------------------

During the period, the Company capitalized $108,937 of general and administrative expenses related to development activities. As at September 30, 2005 the depletion calculation excluded unproved properties of $6.69 million. 5. ASSET RETIREMENT OBLIGATIONS The total future asset retirement obligation was estimated based on the Company's net ownership interest in all wells and facilities, the estimated cost to abandon and reclaim the wells and facilities and the estimated timing of the cost to be incurred in future periods. The total undiscounted amount of estimated cash flows required to settle the obligation is $5.6 million, which will be incurred between 2005 and 2047. A credit adjusted risk-free rate of eight percent and an inflation rate of one and one half percent was used to calculate the present value of the asset retirement obligation. The following table presents the reconciliation of the beginning and ending aggregate asset retirement obligation associated with the retirement of oil and gas properties:

                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
Balance, beginning of period                      $ 810,478   $       -
Transfer of liability through
 Plan of Arrangement                                      -     808,732
Liabilities incurred                                  7,127       7,127
Liabilities settled                                       -           -
Accretion expense                                    16,210      17,956
------------------------------------------------------------------------
Balance, end of period                            $ 833,815   $ 833,815
------------------------------------------------------------------------
------------------------------------------------------------------------


6. SHARE CAPITAL

(a) Authorized:

An unlimited number of voting Common Shares; unlimited number of 
Preferred Shares issuable in one or more series.

(b) Issued:
Common shares:

                                                  Number         Amount
------------------------------------------------------------------------
Issued pursuant to Plan of Arrangement (ii)   10,242,215   $ 41,691,479
Issued pursuant to private placement for
 cash (iii)                                    1,826,484      7,415,585
Share issue costs, net of tax                                   (90,781)
------------------------------------------------------------------------
Balance at September 30, 2005                 12,068,699   $ 49,016,283
------------------------------------------------------------------------
------------------------------------------------------------------------

Warrants:
Issued pursuant to private placement (iii)       913,149   $    584,415
------------------------------------------------------------------------
------------------------------------------------------------------------

(i) Rockyview Energy Inc. was incorporated as 1163924 Alberta Inc. on April 12, 2005 and on April 28, 2005 changed its name to Rockyview Energy Inc. (ii) On June 21, 2005 pursuant to the Plan of Arrangement, 10,242,215 Common shares were issued to former unitholders of APF Trust. (iii) On June 21, 2005 prior to completion of the Plan of Arrangement, there was an Initial Private Placement ("Private Placement") of 1,826,484 units by certain employees, contractors and directors of Rockyview and by certain other placees. Each unit is comprised of one Rockyview Share and one half of a Rockyview Warrant. Each whole Rockyview Warrant will entitle the holder to acquire one Rockyview Share at an exercise price of $5.26. All of the Rockyview Shares and Rockyview Warrants issued pursuant to the Private Placement will be subject to a contractual escrow arrangement. The shares vest evenly over a twenty four month period with the first one-third vesting eight months from the closing of the Private Placement. The Rockyview Warrants will be released on satisfaction of the following two criteria: (i) over time with the warrants vesting evenly over a twenty four month period with the first one-third vesting eight months from the closing of the Private Placement; and (ii) the twenty day weighted average trading price reaching $6.57 before the first tranche is released and $8.76 before the second and third tranche are released. (c) Stock Options Pursuant to the Arrangement, the Company established a stock option plan ("Plan"). Under the Plan, options may be granted to directors, officers, employees, consultants and service providers of the Company. The options vest evenly over three years, starting on the first anniversary of the grant date and expire after 5 years. The following table sets forth a reconciliation of stock option plan activity through to September 30, 2005:

                                           Number of   Weighted average
                                             options     exercise price
------------------------------------------------------------------------
Balance - beginning of period                      -                  -
Granted                                      922,502             $ 4.74
------------------------------------------------------------------------
------------------------------------------------------------------------

(d) Stock Based Compensation The Company accounts for its stock based compensation plan using the fair value method. Under this method the fair value is calculated and a compensation cost is charged over the vesting period of the options granted with a corresponding increase to contributed surplus. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of each option granted was estimated based on the following weighted average assumptions:

                                                     September 30, 2005
------------------------------------------------------------------------
Risk free interest rate                                            3.10%
Expected life                                                         3
Expected volatility                                                  51%
------------------------------------------------------------------------
Fair value of options granted                                    $ 1.76
------------------------------------------------------------------------
------------------------------------------------------------------------


                                               Three months      Period
                                                      ended       ended
                                                  September   September
                                                   30, 2005    30, 2005
------------------------------------------------------------------------
Balance, beginning of period                      $  14,827   $       -
Compensation expense                                136,413     151,240
------------------------------------------------------------------------
Balance, end of period                            $ 151,240   $ 151,240
------------------------------------------------------------------------
------------------------------------------------------------------------

(e) Earnings per share

The following table summarizes the common shares used in calculating net
income per share:


                                               Three months      Period
                                                      ended       ended
                                                  September   September
Weighted Average Common Shares                     30, 2005    30, 2005
------------------------------------------------------------------------
Basic                                            12,068,699   7,086,852
Diluted                                          12,152,698   7,170,851
------------------------------------------------------------------------
------------------------------------------------------------------------

7. TAXES As at September 30, 2005 the Company has tax pools of approximately $49.3 million that are available to shelter future taxable income. The Company has recognized a future tax asset of $3.8 million, reflecting the difference between the tax pools and the net book value of the assets accounted for under the Arrangement. 8. BANK LOAN The Company has a $13.5 million revolving extendible credit facility with a Canadian chartered bank. The facility may be drawn down or repaid at any time but there are no scheduled repayment terms. The credit facility bears interest based on a sliding scale tied to the Company's debt-to-cash flow, from a minimum of the bank's prime rate to a maximum of the bank's prime rate plus 1.25%. The credit facility is collateralized by a fixed and floating charge debenture on the assets of the company. The borrowing base is subject to a semi-annual review by the bank. 9. SUBSEQUENT EVENT On October 31, 2005 the Company announced that it had entered into an agreement to acquire Espoir Exploration Corp. ("Espoir") for a total consideration of $61.9 million. The total consideration is subject to a maximum of $8.325 million in cash and 7.445 million Rockyview shares. The Toronto Stock Exchange has neither approved nor disapproved of the contents of this news release.

Contact Information

  • Rockyview Energy Inc.
    Steve Cloutier
    President & CEO
    (403) 538-5000
    or
    Rockyview Energy Inc.
    Alan MacDonald
    Vice President, Finance & CFO
    (403) 538-5000
    (403) 538-5050 (FAX)
    Email: invest@rockyviewenergy.com